To meet their requirements and remain compliant, firms have had to change their business processes, add staff and increase their compliance-related budgets.
But the real rub for asset managers is that the regulations they need to adhere to are a moving target. That’s because five years after Dodd-Frank’s passage, many of its specific rules are still being written by the SEC and CFTC. Whatever shape the final rules take, they’ll undoubtedly place additional burdens on asset management firms and force them to incur more costs.
This uncertainty is part of the reason why many firms put regulatory compliance high up on their lists of top risks. For example, in a recent survey conducted by State Street reported by FundFire, nearly 60% of the asset management firms polled cited regulatory compliance changes as the single biggest threat to their businesses over the next year – higher than all market risks.
Compliance clearly remains a major chore and an even bigger headache for asset management companies.
More than Overhead: The New Upside of Compliance Expertise
The expertise that compliance, operations and marketing team members have developed while navigating choppy regulatory waters is delivering an unexpected side benefit to their firms. This expertise is being used as a differentiator by their institutional sales teams
Mirroring the concerns of asset management firms, institutional clients are also worried about the direction and scope of future regulatory changes, and the potential impact they’ll have on their businesses. For this reason, these prospects and clients are ascribing higher value to asset managers with demonstrable expertise in managing through the evolving regulatory environment. By showcasing their ability to look further out on the regulatory horizon, identify looming issues and come up with sound strategies for managing them, firms can give their institutional sales teams a distinct advantage over competitors.
In the highly competitive institutional asset management space, firms need to use every advantage they have to sway prospective clients in their direction. But transforming what has traditionally been an internal, operational competency into a client-facing ‘feature’ presents a different set of challenges for these firms.
Most firms already have compliance-savvy teams that are well-versed in current regulatory best practices, and that use up-to-date compliance systems and tools. Firms just need to do a better job of packaging and presenting these people and their expertise when they’re at the table with institutional clients.